The committee therefore recommended to Sebi that "the listing agreement of the stock exchanges be strengthened and the exchanges themselves be vested with more powers, so that they can ensure proper compliance of code of corporate governance". (This is hereafter referred to as Sebi code.) In this context the said committee further recommended that the Securities Contracts (Regulation) Act, 1956 should be so amended as to make the concept of listing agreement be replaced by listing conditions. Suitable amendments to the Companies Act, 1956 (CA) and Securities Contracts (Regulations) Rules, 1957 were also among other recommendations.

In fact, Companies (Second Amendment) Bill 1999 under clause 134 seeks to insert a new Section 292A to the said Act mandating corporate governance by all public companies and the said bill is still pending before the Lok Sabha. The Sebi code and the proposed provisions of the Companies Act are at variance. The composition suggested by the Sebi code and the newly inserted clause 49 of the listing agreement is a "minimum three members, all being non-executive directors, with majority of them being independent (the term independent is defined in the code) with at least one director having financial and accounting knowledge." As opposed to this the CA proposes that the audit committee shall consist of "not less than three directors and such number of other directors as the board may determine of which two-thirds of the total number of members shall be directors, other than managing or whole-time directors."

Significantly, the CA includes the managing or whole-time director as a member of the committee while the listing agreement specifically excludes the managing or whole-time director from being a member of the audit committee. There are other such anomalies and it is not necessary to go into a detailed analysis. Suffice it say, that the two regulatory bodies are at loggerheads and it has merely boiled down to a question of "who wields the willow". A sad commentary indeed.

Now let us overview what is sought to be achieved through the instrumentality of the listing agreements for better corporate governance of only the listed public companies. Mind you, there is no bar on a listed company getting itself delisted by obtaining the approval of the shareholders.

Clause 41 of the listing agreement is amended and this clause deals with disclosure norms. This mandates, following the recommendations of the Sebi code, that the listed companies shall "furnish unaudited financial results on a quarterly basis with effect from the quarter-ending March 2000 ". The information that is required to be disclosed should be as per the pro forma annexed to this clause and this should be furnished within one month from the end of quarter to the stock exchange. An announcement is also required to be made to the stock exchanges where a company is listed immediately after the market hours on the date of the board meeting in which the unaudited financial results are placed and also within 48 hours of the conclusion of the board meeting in at least one English daily newspaper circulating in the whole or substantially the whole of India and in one newspaper published in the language of the region, where the registered office of the company is situated. The rest of the conditions as hithertoon the modality of intimation to stock exchange of the date of the board meeting at which the financial results are to be considered are also retained.

Another important departure is that in addition to the above, the company shall prepare half-yearly results with effect from half year ending on March 31, 2000 and "the same shall be approved by the board of directors and subjected to a "limited review" of the auditors of the company and the review report shall be submitted to the stock exchanges within two months after the close of the half year and it is conditioned that if any item varies by 20 per cent or more from the first and second quarter of unaudited results a statement should be sent to the exchanges explaining the reasons.

The said clause also requires disclosure of - (i) information on expansion, diversification programmes, strikes, lock-outs, change in management, change in capital structure, material events subsequent to the end of the quarter etc; (ii) all material non-recurring/abnormal income/gain and expenditure/ loss and effect of all changes in accounting practices affecting the profits materially; and (iii) effect of changes in composition of the company during the quarter including business combinations, acquisitions or disposal of subsidiaries, long-term investments, restructuring and discontinuance of operations.

Clause 49 is a new clause basically aimed at introducing the concept of good corporate governance. The essence of Sebi code is sought to be implemented and the duties, functions and the responsibility of the audit committee have already been dealt with in these columns and repetition is avoided for lack of space. While the code will become operative immediately for companies who seek listing for the first time, the schedule for other listed companies is phased out, the earliest date being financial year 2000-2001 but not later than March 31, 2001. It will be imperative for such companies to reconstitute their board so as to conform to the requirements, most important being the induction of independent directors.

Independent directors mean directors who apart from receiving director's remuneration, do not have any other material pecuniary relationship or transactions with the company, its promoters, its management or its subsidiaries, which in the judgement of the board may affect independence of judgement of the director. There is a overall ceiling on managerial remuneration under the provisions of CA and the quantum that can be paid to directors who are not managing or whole-time directors has to conform to the provisions of Sections 198, 309 and 310 of the CA. With this constraint it will be an uphill task to find persons who will accept the office of directorship without adequate compensation for the services expected of them. A measly sum of Rs 5,000 per director per meeting cannot adequately reward them. Sebi should take up this with the government for a suitable amendment to the aforesaid provisions. Sebi should also set up suitable mechanism and machinery to monitor the compliance of this clause by listedcompanies.